Cotton yarn market turned better at the end of Feb, as transaction in Nantong, Guangdong and Zhejiang improved significantly, and sales of cotton yarn 21-26s, 40-60s grew. Also cotton yarn prices rose slightly after rebounding ZCE cotton futures. However, the trading sentiment weakened 1-2 weeks later, and sales also varied by varieties. At present, all varieties, except for compact-spun yarn 40-50s, suffered lower sales. Cotton yarn 32s, in particular, showed much lower sales than previous years and prices also fell.
Current situation was caused by insufficient downstream orders and falling cotton price, which led to a growing concern among market participants.
Based on our research, weaving mills received increasing orders after Spring Festival, particularly in late Feb, and existing orders of weavers then could maintain operation till the end of Mar. Half a month later, however, the growth rate of new orders slowed, and current existing orders could maintain operation till the end of Mar or early Apr. Many believed the market would turn flat after Qingming Festival (Apr 5). Until now, weavers鈥 existing orders were largely from domestic market, which seemed positive after pandemic restrictions being lifted, while the growth of export orders was rather worrisome if compared with previous two years. And domestic orders usually grow during a certain period and its sustainable growth is uncertain.
Besides, cotton prices faced pressure to rise. Over past two weeks, cotton prices dropped by over 500bps and market panic grew due to macro risks.
Weaving mills had low inventory but high operating rate and output. China鈥檚 cotton yarn monthly output (recycled excluded) fell below 400kt in 2022 and driven by higher enthusiasm for production, the output is expected to be more than 500kt this Mar, and if sales weaken, inventory will soon accumulate. Market participants somewhat worried about the outlook and many lowered prices or offered discounts to facilitate sales and prevent an early inventory accumulation at this stage, though current inventory remained low and profit didn鈥檛 grow much.
Cotton prices are expected to fluctuate and downstream mills are less likely to see a sustainable growth of orders. Spinners maintain a high-level operating rate and there鈥檚 yet any sign of production reduction. Market will probably turn flat after Qingming Festival (Apr 5), like previous years. And cotton yarn will be in oversupply if export orders fail to increase and cotton yarn prices will more likely to fall.
